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Is Schlumberger Limited (NYSE:SLB) Expensive For A Reason? A Look At The Intrinsic Value

Does the share price for Schlumberger Limited (NYSE:SLB) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after January 2018 then I highly recommend you check out the latest calculation for Schlumberger here.

Crunching the numbers

I’ve used the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin, I took the analyst consensus forecast of SLB’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 9.83%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of $19,786.1M. Want to know how I calculated this value? Take a look at our detailed analysis here.

NYSE:SLB Intrinsic Value Jan 15th 18
NYSE:SLB Intrinsic Value Jan 15th 18

Above is a visual representation of how SLB’s earnings are expected to move going forward, which should give you some color on SLB’s outlook. Secondly, I calculate the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of $65,265.1M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is $85,051.2M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $61.40, which, compared to the current share price of $77.97, we find that Schlumberger is fair value, maybe slightly overvalued and not available at a discount at this time.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For SLB, there are three relevant aspects you should further research:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NYSE every 6 hours. If you want to find the calculation for other stocks just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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